Ofcom are to look into if BT need to reduce the price of their wholesale superfast fibre optic broadband prices after claims that they were charging rivals too much for use of their network.
In May last year TalkTalk complained to Ofcom that BT were abusing their dominant position when setting prices for wholesale fibre optic broadband and now a report in the Financial Times claims that the communications regulator will launch a consultation into the price’s of BT’s wholesale fibre optic pricing which is to be done before the end of May.
Redburn Partners, who are an equities partner told the Financial Times that:
“We think Ofcom’s margin squeeze test could reduce BT wholesale fibre prices by at least £2 per month initially, with ongoing monitoring potentially leading to further cuts.”
BT are naturally not going to be pleased with Ofcom doing their investigation, especially if it does result in Ofcom agreeing with TalkTalk’s complaints and making BT Openreach reduce the wholesale prices if charges competitors for access to its fibre network.
BT has named the former head of HSBC UK, Joe Garner, as the new CEO of BT Openreach, the division of BT that is responsible for the roll out of fibre optic broadband.
BT’s current CEO, Liv Garfield, is due to step down mid-February to take over at Severn Trent, the water company and this left the position available for Joe Garner who left his previous role as head of HSBC UK in 2012 and in other jobs before that he has worked for Dixons and Procter & Gamble. BT will have looked at some of his previous jobs and positions and seen that he is a man who can perform well in highly regulated areas and succeed. BT were keen to point out that Mr Garner was in charge at HSBC through the financial crisis and that he helped lead the bank to be No.1 bank for service in First Direct and that while he was at HSBC in the UK he achieved the best long-term record on customer complaints amongst the major banks as well as industry-beating levels of employee engagement.
Mr Garner, said:
“I am thrilled to be joining Openreach at such a critical moment – a moment when technology is redefining how our society communicates. The massive investment that Openreach is making in the UK’s high speed internet infrastructure is something of a revolution that will greatly benefit people and businesses in this country. I am grateful to my predecessor and the engineers who have already delivered so much. It is my ambition to build on this work and I intend to focus on customer service, continued innovation and maintaining fair and equal access for all.”
The big target for Mr Garner will be to make sure he keeps meeting the UK targets for roll out of fibre optic broadband across the UK with the current target of 95% coverage across the UK with fibre optic broadband by the end of 2017.
Broadband and telephone bills could reduce even more if proposals from Ofcom go ahead that will see further reductions in the wholesale rental prices that BT Openreach charge to rival suppliers who use their network.
Currently rival providers pay up to £93.27 per year to rent the copper wires that are used to bring telephone and broadband services to around three quarters of UK homes but Ofcom is hoping for consumers to see real price reductions with their proposals which could see line rental charges reduced for customers.
The actual proposed price changes would be set to run for 3 years and be linked to inflation. Ofcom ar elooking for them to start next year on the 1st April 2014 and run until 31st March 2017.
The price changes take in fully unbundles lines, shared unbundled lines and wholesale line rental. The suggested pricing changes are as follows:
- Fully unbundled lines: the regulated wholesale price for this service today is £84.26 per year. Under Ofcom’s proposals this will fall in real terms by between CPI ? 0% and CPI ? 6% every year;
- Shared unbundled lines: the regulated wholesale price today is £9.75 per year. Under Ofcom’s proposals this will fall in real terms by between CPI ? 8% and
CPI ? 12% every year;
- Wholesale line rental: the regulated wholesale price today is £93.27 per year. Under Ofcom’s proposals this will fall in real terms by between CPI ? 2% and CPI ? 8% every year.
It should be noted that these reductions are only set to be for BT’s copper network and not their new superfast fibre optic broadband network that is currently undergoing a nationwide deployment.
Line rental charges are what bump up many monthly costs with broadband and phone packages. For example currently people can take out Plus.net broadband and phone half price off for £2.99 per month for 12 months but on top of this there is then a £14.50 monhtly line rental charge.
Ofcom are to look into if BT have been abusing their dominant position with superfast broadband after a recent complaint from rival TalkTalk claimed they were building a monopoly and using their dominant position when setting prices for fibre optic broadband.
Ofcom, the UK telecoms regulator have launched the competition inquiry after they thought that there was reasonable suspicion that BT have been price fixing with it’s fibre broadband lines. The complaint last month from TalkTalk was for an investigation to be done into the wholesale prices that BT Openreach charge rival providers for using their network, they complained that “BT has failed to maintain a sufficient margin between its upstream costs and downstream prices, thereby operating an abusive margin squeeze.”
The prices charged to the 80 or so rival broadband providers who use the BT network are the same as BT Retail also pay and it has only been TalkTalk who have raised a complaint.
This was not the only beef that TalkTalk had with BT, they also questioned about the money the government are giving to BT under the BDUK scheme and saying that they are helping them create a monopoly.
A BT Spokesman said:
“We are confident there is no case to answer. It would be better if the industry’s, and Ofcom’s, focus was on investing in the future of the country rather than on spurious actions designed to hold up fibre in the UK.“
Ofcom have announced new lower prices that BT Openreach can charge to rival communications providers for access to their network.
The proposed new prices were suggested by Ofcom in February this year and have since been sent to the European Commission for approval as is now required. The European Commission made no changes to the price caps recommended by Ofcom which are now due to come into effect on 1st April 2012. The reason BT have their prices regulated by Ofcom is because of BT’s market power being so great in the UK.
The new prices imposed are as follows:
Fully Unbundled line (where a rival communications provider has installed their own equipment and take control of the BT line) previously cost £91.50 per year and this has been reduced to £87.41 per year.
Part unbundled line (where a rival provider only supplies the broadband) was £14.70 and has been reduced to £11.92 per year.
Wholesale line rental (where a rival communications provider can offer telephone services by renting the lines from BT Openreach) previously cost £103.68 per year has been reduced to£98.81 per year.
The new prices will come into effect on 1st April 2012.
However, despite Ofcom having had their new prices approved it is thought that BT could make an appeal against the price reductions with BT claiming that they need to make a decent return on their investment to be able to continue investing in their infrastructure in the future.
BT Openreach have announced a further 178 exchanges that to be upgraded to its fibre broadband technology.
The extra exchanges that have been listed will cover around 1.8 million homes and businesses with most of them being connected with FTTC (Fibre To The Cabinet) with most of them hopefully being connected during 2012.
Currently there are around 6 million premises in the UK that have access to fibre broadband via BT’s “BT Infinity” network and once all the exchanges on the current list and these new exchanges have all been enabled it will see BT having hit 80% of their target coverage of two thirds coverage across the UK by 2014.
BT have already brought forward the date by a year for when they hope to achieve their two thirds coverage by and along with this they also announced not long ago (read here) that they will be doubling their main 40Mb fibre broadband product to 80Mb next year too.
BT’s headline full fibre product (limited availability) will also be increased from 110Mb to a whopping 300Mb in early 2012 too, this is a huge difference that the current average broadband speed test result of 6.8Mb that the UK currently has. Unfortunately most of the UK will be connected by FTTC (the current 40Mb one) and not the full FTTH (Fibre To The Home) that will see the up to 300Mb speeds.
Although BT are investing £2.5bn in their fibre network to cover two thirds of the UK, they do believe that with extra investment and funding that around 90% of the UK could be covered with fibre broadband. This requires some of the money from the BDUK (Broadband Delivery UK) scheme to help BT roll out fibre that bit further.
The full list of the 178 exchanges that BT have announced can be viewed at www.btplc.com.
The price of home phone and broadband services could be set to come down after Ofcom, the telephones regulator, look to reduce the wholesale prices charged by BT Openreach.
Openreach are the wholesale division of BT and are responsible for charging other providers access to the BT network and the wholesale price charged to some broadband providers could be reduced by up to 10% per year which will benefit broadband providers such as Sky and TalkTalk.
Two of the ways in which rival broadband providers can get access to BTs network are both set to have the prices reduced, the first is through Local Loop Unbundling, this is where rival providers are able to install their own equipment into the local BT telephone exchange and take control of a customers line, these prices are set to drop by between 1.2% and 4.2% every year if Ofcom gets its way. In instances where the telephone line is shared the price is set to be reduced by 11.6%-14.6% each year with the current price charged being £89.10 per year.
With around 7.6 million unbundled lines in the UK this will mean that there is a lot of people who will benefit from these reductions.
The other way rival providers access BTs network is through Wholesale Line Rental (WLR) which is where the rival providers are simply renting the line from BT. There are around 6.1 million WLR line in the UK and Ofcom are looking to see yearly reductions in price of between 3.1%-6.1% with the price for this currently set at £103.68 per year.
A statement from BT had the following to say:
“BT invests more than any other company in the UK’s communications infrastructure, so it is critical that it is able to achieve a fair rate of return in order to continue its investment in copper and fibre-based services.
Upon initial review, we are encouraged by Ofcom’s recognition of this fact, but would question some of the underlying assumptions being used.“
BT are going to have to lower the charges that are put on rival broadband providers for accessing their phone and broadband lines according to a court ruling.
In May 2009 Ofcom put in price caps that BT could not charge more than to rivals wanting to access their network, however a “Competition Appeal Tribunal” yesterday in London came to the decision that these price caps were too high and needed lowering. They said that Ofcoms calculations that took in inflation and efficiency were not correct and that they should get new lower price caps done ASAP.
TalkTalk and BSkyB had gone to the Competition Commission who was in support of their claims even though BT said that the price cap that was imposed last year was too low for them already to be able to recover their costs, so this new ruling will no doubt be an even bigger blow to BT.
Officials from BT said that any adjustments that are made by Ofcom should only be small because the errors that were made by Ofcom were smaller than what rivals such as TalkTalk had argued in court. It is believed that the final adjustment will be in the region of £4 million pounds.
BT Openreach is the sector of BT that deals with allowing rivals to use their equipment which includes the new fibre optic broadband network they are installing (BT Infinity). BT are investing £2.5 billion in their new fibre network and want to make sure that they can make enough back from their investment which includes the charges they will give to rivals for accessing the new fibre lines.
The UK now has more than 7 million unbundled lines where rival companies offer their services over BT’s network.
In 2005 this figure stood at just 123,000 unbundled lined in the UK when BT and Ofcom came to an agreement that would see BT set up a new division called BT Openreach that would be used to allow competitors access to BT’s network and take control of the line to customers homes to offer their own services.
Now the UK has over 19 million broadband lines and more than 70% of these are provided by other companies than BT which includes over 30 companies who are offering broadband services which are unbundled. With so much competition out there the result has meant that broadband connections have gone up and the price of broadband has come down.
The study by Ofcom found that in the last quarter of 2005 the average price excluding VAT that customers were paying for broadband was £23.30 per month with the same service today costing just £13.31 meaning quite a substantial saving.
Companies who make use of the LLU (Local Loop Unbundling) and use BT’s copper network include companies such as Sky & TalkTalk.
BT are currently investing £2.5 billion in their new fibre broadband (BT Infinity) that will be able to deliver broadband speeds up to 40Mb.
BT have started their pilot test of fibre broadband in parts of North London and Wales. The two areas chosen to start receiving Fibre To The Cabinet (FTTC) are Muswell Hill and Whitchurch.
The trial services will be available via BT Openreach which means that other broadband providers, including Sky and O2 Broadband will also be included in offering the FTTC to their customers.
Both of the locations that the pilot schemes are being tested at have over 15,000 premises (residential and business) and 100 roadside cabinets.
It is envisaged that customers will receive broadband download speeds of up to 40Mb and upload speeds of 5Mb.
Fibre To The Cabinet involves laying fibre optic cable from the telephone exchange to the street side cabinet and then using the existing copper lines to connect the cabinet to the house.
FTTC is the cheaper alternative to FTTH (Fibre To The Home) which involves taking the fibre optic cable from the telephone exchange right to the house which also offers the fastest speeds.